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Crypto, blockchain and the hyper-technologization of offshore structures

On 2 November 2023, Sam Bankman-Fried (SBF), the former billionaire head of the collapsed cryptocurrency exchange FTX Trading Ltd. (FTX), was convicted on seven counts of fraud, conspiracy and money laundering following his arrest in December 2022. In March 2024, SBF was sentenced to 25 years imprisonment. He is now appealing both the conviction and sentence.

Thomas McLachlan

Structural complexity

On 2 November 2023, Sam Bankman-Fried (SBF), the former billionaire head of the collapsed cryptocurrency exchange FTX Trading Ltd. (FTX), was convicted on seven counts of fraud, conspiracy and money laundering following his arrest in December 2022. In March 2024, SBF was sentence to 25 years imprisonment. He is now appealing both the conviction and sentence.

The structural complexity of the FTX operation, combined with a total lack of corporate controls, left billions of dollars in the hands of SBF and his co-conspirators. It also precipitated the swift collapse of the business and charges of fraud by SBF on a massive scale. FTX was a cryptocurrency exchange created and operated by SBF. Such exchanges operate as a central service which provides lay investors with the ability to invest their money in crypto assets and digital tokens. Their operations are almost entirely online.

FTX was incorporated in Antigua and Barbuda. The FTX organogram reveals operations in Delaware, the BVI, Antigua and Barbuda, Gibraltar, Malta, Australia, Cyprus, Seychelles, Singapore, Canada, the Bahamas, Nigeria, Hong Kong, Switzerland, Japan, Germany, Liechtenstein, UAE, Vietnam, India, South Korea, the Cayman Islands, Panama, and Turkey.[1]  This is a complex web of offshore companies by any standard. That web provided a corporate support structure for the activities of FTX. However, in this case, the fundamental qualitative difference is in the communications and technological context within which these structures operated.

The FTX structure is now arranged into separate silos for asset recovery purposes, including the ‘Dotcom Silo’ (consisting of FTX’s non-US exchanges), the ‘WRS Silo’ (primarily made up of FTX’s US entities), ‘FTX Ventures Silo’ (FTX Ventures and other structures used for venture investing), and the ‘Alameda Silo’ (including Alameda Research, i.e., SPF’s crypto hedge fund and its corporations). Each of these were at all times controlled and overseen by SBF, contrary to his claims that he had ceased to be involved in Alameda Research. Funds were repeatedly transferred between these silos, despite there at the time being a public impression of segregation.


Regarding the FTX collapse itself, the relevant events and key allegations are as follows.

The FTX terms of service stated that “You control the Digital Assets held in your Account…Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading.” And “None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading.”

Yet it soon became apparent that customer funds were misappropriated on an enormous scale and were siphoned off to finance Alameda Research, unbeknownst to customers and in clear violation of the FTX terms of service.

On 2 November 2022, it was also revealed that Alameda Research held a $5 billion position in FTT (FTX’s native digital token). On 6 November 2022, Binance (another crypto exchange) liquidated its holdings in FTT, which caused a liquidity crisis at FTX, after an initial proposal by Binance to acquire FTX, which was then jettisoned. As FTX subsequently collapsed and the misapplication of customer funds became clear, SBF set about conducting a blitz media campaign of tweets and interviews in an apparent effort to present FTX’s failings as a negligent mistake. More than $8 billion of customer funds were lost in the collapse.

Technology-driven manipulation

SBF represented himself publicly as a virtuous philanthropist whose commitment to a philosophy of effective altruism purportedly distinguished his and FTX’s operations from a traditional ruthless capitalism. FTX was perceived as a sophisticated and professional online platform for exchanging crypto assets, echoing the way that, decades earlier, the Enron Corporation had been perceived as a highly innovative energy producer for the future. Ultimately, in both cases the wrongdoers’ carefully crafted image of sophistication and legitimacy was false. Instead, both were sad reflections of a public being drawn to the glamour of progress despite clear warning signs.

At its core, the FTX collapse was a cultural phenomenon and a product of over two decades of rapid social change. It blends prevalent cultural obsessions of the last decade (adoption of new technologies, a culture of digital nomadism and internationalism, extreme wealth, and fame), all coinciding in one of the biggest insolvencies and elaborate frauds in recent history.

It also demonstrates that enhanced forms of technology can enable manipulation of the offshore system in a far more dynamic and instant way than could previously have been imagined. In 2001, Enron entered a state of total collapse within less than three months. Yet in 2022, the events which perpetuated the similar collapse of FTX took less than three days. FTX’s CEO in bankruptcy, John J. Ray III (who also oversaw the Enron insolvency process) has described the collapse of FTX as “unprecedented and a complete failure of corporate controls[3].

Similarly, in 2001, an operation of FTX’s scale could not have been limited to a handful of highly intelligent conspirators with little more than internet access. Within Enron, a vast network and infrastructure of professionals was necessary to keep all the conspiracy’s elements smoothly ticking along, although it is true that there were a select few identifiable controlling minds. Enron’s dishonest accounting and use of special purpose vehicles are very well known but in that case the conspiracy was extensive and involved external organisations (e.g., Arthur Andersen as auditors) acting dishonestly over the course of many years.

By contrast, in the case of FTX, the conspiracy was literally perpetrated by a small group of friends (in Ray’s terms, “inexperienced, unsophisticated and potentially compromised individuals”) from a Bahamas penthouse, using a handful of laptops and smartphones. FTX’s internal governance was virtually non-existent from the very start.

These developments offer important lessons in the fields of asset recovery and insolvency. It is obvious that rapid change is occurring, that this is accelerating, and that it is seeping into the law. It is critical that offshore practitioners and regulators are aware of these changing dynamics and keep themselves continuously updated with the most recent developments in these areas and the technologies that underpin them.

Technology-driven manipulation of the offshore system is only going to accelerate and increase in complexity in the coming years and decades. Further, the very nature of the underlying assets can be expected to change in ways which are currently inconceivable. The acclaim for FTX and its spokespersons prior to the collapse is itself an embarrassing reflection of society’s naivety when presented with such apparent successes. Powerful advertising, celebrity endorsements and a professional user interface provided FTX with an image of apparent sophistication. Equally, the low regulation jurisdiction of the Bahamas, and a complex web of offshore entities, provided FTX with liberty to operate with a dearth of strict oversight.  FTX will not be the last case of this. The difficulty in tracing these highly ephemeral assets, behind these increasingly opaque structures, is obvious.

Offshore practitioners can also expect there to be growing calls for more regulation. There is evidently a growing concern among regulators of a need for far greater oversight of these exchanges and their products generally. Any increase in oversight is bound to have further second-order effects, and thus legal practitioners can expect those operating in the offshore space to purposely increase the level of complexity and opacity in their activities, to avoid a more stringent regulatory regime.

Case law

Importantly, in the courts of England and Wales, crypto assets are recognised as property (AA v Persons Unknown [2019] EWHC 3556 (Comm)), and despite the picture being far less consistent internationally – with various jurisdictions banning the technology outright – the trend is clearly towards greater recognition of its status as legal property, albeit with calls for more stringent regulation.  Importantly for offshore practitioners, Bankers Trust and Norwich Pharmacal orders may also be available (Mr Dollar Bill Limited v Persons Unknown [2021] EWHC 2718), and special instances of service have developed which make use of the blockchain (D’Aloia v Binance Holdings & Others [2022] EWHC 1723 (Ch)).

Mark Pelling KC recently delivered the following account of this rapid change (and the suitability of the common law in dealing with it) to the ‘ThoughtLeaders 4 Annual Crypto in Disputes Conference’ on 28 June 2023:

“I expressed the view then that it was improbable that any different approach would be taken in relation to crypto fraud claims, whilst noting that state courts in any jurisdiction, and those in England and Wales are no different, face acute jurisdictional difficulties in relation to information gathering claims by victims of fraud, usually against Exchanges based in foreign jurisdictions, to claims against fraudsters whose identities were unknown, at any rate at the start of the litigation, operating in a myriad of offshore jurisdictions, and to enforcement of judgments, particularly in relation to proprietary claims involving tracing through a network of foreign registered entities.”

“The most novel proposal advocated by the [Law Commission] concerns support by the industry and those connected with it to the wider judiciary. The basis for this proposal is the underlying theme that the heavy lifting so far as crypto litigation is concerned should be by the common law. This raises a real difficulty however – caused by the proliferation over time of new products, many of which will be complex, “malleable in their functionality”, multi-faceted and using different and ever advancing technology. Because of the speed of change that is likely, the Commission concludes that the common law is better able to keep up than statute law reform.  To my mind this is both unsurprising and realistic. However, the Commission concludes that the task of staying alive to such developments poses an enormous task for the judiciary and therefore recommends that the Government creates or nominates a panel of industry-specific technical experts (meaning those with expertise in Crypto token markets as well as traditional finance and intermediated security markets), legal practitioners, academics and judges to provide non-binding guidance on the complex and evolving factual and legal issues relating to control involving certain digital assets (and other issues relating to digital asset systems and markets more broadly). The rationale for this novel (indeed in the civil law context I think unique) approach is that it will result in consistent and informed decision making.”[4]

In Jersey, the case law on crypto assets is scarce, with only three identifiable on (two criminal cases (AG v Aguiar [2021] JRC316 and AG v Agathangelou Bayliss Bisson and Morgan [2021] JRC056) and one family case (E v F (Family) [2019] JRC218)). Additionally, an article assessing ‘The Recognition of Smart Contracts in Jersey’ has been published and is available[2] on

The case law in the Cayman Islands is even more limited than in Jersey. In the Matter of Atom Holdings, in which the Baker and Partners Cayman Islands team acted for the petitioners, appears to be the first (and at the time of publication of this article, the only) published court decision concerning cryptocurrency.  For more on this, see Adam Crane’s article of 8 December 2022 here. Other proceedings involving cryptocurrency concerned a letter of request to the Cayman Islands court to obtain evidence from within the Cayman Islands in support of foreign proceedings.

Article written by Thomas McLachlan with contribution from Nicosia Lawson.

Further reading:

[1] ‘Untangling the knotty empire of Bankman-Fried and FTX’, Financial Times (10 November 2022)

[2]  German, Emma, ‘The Recognition of Smart Contracts in Jersey’ (The Recognition Of Smart Contracts In Jersey (

[3] ‘New FTX boss, who worked on Enron bankruptcy, condemned “unprecedented failure”’, The Guardian (17 November 2022)

[4] ‘Speech by HHJ Pelling KC: Issues in Crypto Currency Fraud Claims – an update’, ThoughtLeaders4 Annual Crypto in Disputes Conference (29 June 2023)